US Transfer Pricing Court Decisions
Major Court Decisions Affecting Transfer Pricing in the United StatesHere is a partial listing of major court decisions affecting US Transfer Pricing:
|Banker's Trust New York Corporation and Colsidated Subsidiaries v. United States (pdf)||September 20, 2000||While this decision does not deal directly with transfer pricing, it describes limits on IRS authority and is therefore a strong precident to cite when challenging IRS authority to regulate beyond statuatory powers.|
|United States of America, Petitioner, vs. John Cox, Tax Director of BMC Software and Subsidiaries, Respondent (pdf)||January 8, 1999||The IRS filed a summons to get BMC's computer source code as part of a transfer pricing audit, but, in this decision, the court ruled in favor of BMC and quashed the summons.|
|Boeing Co. Et Al. v. United States (pdf)||March 4, 2003||Boeing appealed and IRS ruling that it had improperly applied the combined taxable income (CTI) method of transfer pricing by including research and development costs that did not pertain directly to the income in question. The U.S. Supreme Court upheld the IRS position, affirming the Court of Appeals decision in favor if the IRS.|
|Compaq Comuter Corporation and Subsidiaries v. Commissioner (pdf)||July 2, 1999||Compaq Computer's purchase price for printed circuit assemblies from its Singapore subsidiary was challenged by the IRS. In this decision, the United States Tax Court found that Compaq's calculations were consistent with arms-length principles.|
|Computervision Corporation, Petitioner v. Commissioner of Internal Revenue, Respondent (pdf)||April 16, 1991||Computervision used a domestic international sales corporation (DISC) for export sales of its products and included those transaction costs in its combined taxable income (CTI) calculation. In this decision, the US Tax court upheld the IRS ruling to disallow inclusion of export promotion expenses in the calculation of taxable net income.|
|DHL Incorporated and Subsidiaries v. Commissioner of Internal Revenue (pdf)||April 11, 2002||When DHL sold the "DHL" trademark to DHL International, the IRS disagreed with DHL's evaluation of the arms-length price of the intellectual property and used its authority under Section 482 to reallocate income and impose penalties. DHL appealed the IRS ruling and the tax court upheld the IRS allocation to DHL. In this decision the U.S. Court of Appeals for the Ninth Circuit affirmed the tax court's application of Section 482 to the sale of the trademark and the $100 million valuation for the intangible asset, but reversed the tax court's rejection of a $50 million vallue of the foreign trademark rights, as asserted by DHL.|
|Dow Corning Corporation v. the United States (pdf)||January 14, 1993||Dow Corning appealed an IRS ruling on the argument that the Treasury Regulations on which the IRS ruling was based were invalid. In this decision, the US Court of Appeals for the Federal Circuit upheld the US Claims Court's summary judgement ruling in favor of the IRS.|
|GlaxoSmithKline Holdings, Inc. v. Commissioner of Internal Revenue (pdf)||July 5, 2001||This unusal joint application to allow depositions found Glaxo and the IRS jointly petitioning the tax court for permission to depose two former Glaxo executives in anticipation of an evential Section 482 challenge to Glaxo's taxable revenue calculations. The Court granted the joint application. The decision is interesting as it pertains to the submission of evidence in disputes with the IRS.|
|International Paper Company and Consolidated Subsidiaries v. United States (pdf)||April 27, 1995||In this decision, the United States Court of Federal Claims granted partial summary judgement in favor of International Paper in their case petition for refund of taxes assessed by the IRS based on an incorrect determination of net taxable income.|
|Medieval Attractions N.V. v. Commissioner of Internal Revenue (pdf)||October 9, 1996||The United States Tax Court sustained the IRS determination that there were no arm's-length business reasons why payments would have been made for the intangible property in question and therefore refused to allow those expenses to be included in the Section 482 calculation of net taxable income.|
|Microsoft Corporation v. Commissioner of Internal Revenue (pdf)||February 10, 1998||Microfoft appealed an IRS ruling, which had disallowed the use of the profit-split method to recalculate Microsoft's taxable income. In this decision, the United States Tax Court found in Microsoft's favor, granting the motion for summary judgment.|
|National Semiconductor ad Consolidated Subsidiaries v. Commissioner of Revenue (pdf)||May 2, 1994||National Semiconductor appealed an IRS ruling pertaining the allocation of income from its Asian subsidiaries. In this decision, the United States Tax Court upheld the IRS ruling.|
|National Westminster Bank v. Commissioner of Internal Revenue||November 14, 2003||The IRS disallowed interest deductions from National Westminister Bank's net taxable income calculation. National Westminister appealed the ruling on the grounds that the regulation being applied was inconsistent with the U.S.-U.K. Income Tax Treaty. In this decision, the US Court of Federal Claims granted National Westminster's motion for partial summary judgement.|
|Seagate Technology, Inv., Successor in Interest to Seagate Peripherals, Inc., f.k.a. Conner Peripherals, Inc. v. Commissioner of Internal Revenue (pdf)||December 22, 2000||The IRS ruled that Seagate should have included the cost of employee stock options in the net revenue calculation associated with its cost-sharing agreement with its foreign subsidiaries. Seagate appealed the ruling on the grounds that the IRS was not aware of actual arm's length circumstances relating to the employee stock option compensation. In this case, the United States Tax Court found in favor of the IRS.|
|Sundstrand Corporation and Subsidiaries v. Commissioner of Internal Revenue (pdf)||February 19, 1991||Sunstrand licenced technology to its Singapore-based subsidiary, SunPac. The United States Tax Court ruled that the amounts paid by Sunstrand to SunPac did not constitute and arm's-length consideration under Section 482, but also that the IRS overstepped its authority in calculating taxable net income. The Court also eliminated interest penalties imposed by the IRS.|
|Union Carbide Corporation and Subsidiaries v. Commissioner of Internal Revenue (pdf)||June 15, 1998||Union Carbide challenged and IRS ruling regarding its commission expenses, but the United States Tax Court granted the IRS' cross-motion for partial summary judgement, ruling that the calculation was made correctly and that the temporary regulations on which basis the IRS had acted were valid.|
|Xilinx Inc. and Subsidiaries v. Commissioner of Internal Revenue||August 30, 2005||The IRS ruled that Xilinx should have allocated stock option costs for foreign subsidiary research and development employees as part of its Section 482-7 cost-sharing agreement calculation. In this decision, the United States Tax Court overruled the IRS, finding that in an arm's-length situation, unrelated parties would not allocate employee stock option costs in the way determined by the IRS.|
How do these decisions affect your company?
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To sumbit other transfer pricing decisions for inclusion in this page or to offer corrections to any of the above listings, please email the information to email@example.com or call us at (617) 795-0519.